Written by

Joe Guillen and Matt Helms

Detroit Free Press Staff Writers

A deal for about $6 million could resolve the cable TV issue and other unpaid bills at Joe Louis Arena.

More

ADVERTISEMENT

The City of Detroit is on the verge of settling a long-standing debt it says is owed by the Ilitch family’s business empire so the Red Wings owner can move forward with a plan to build a new hockey arena near downtown.

City officials say the Ilitches could owe the bankrupt city up to $80 million in payments tied to cable TV revenues, which were included in a 1980 amendment to the Red Wings’ original lease of Joe Louis Arena before the Ilitches bought the team in 1982. It is unknown whether the Ilitches ever have paid the city anything related to such revenues, according to city records. Nor is it clear how much of an effort the city has made over the past 30 years to assess and collect any money owed it.

But now the city is expected to offer a settlement of about $6 million to resolve the cable TV issue and a variety of other unpaid bills at the Joe.

Olympia Entertainment, an Ilitch company, has maintained through the years that the city is not entitled to any cable TV money. The company informed the city in 2007 that “Olympia has neither sold any such rights nor has it received any money for the sale of such rights.” The company’s position has made it difficult for the city to calculate how much it believes the company owes.

Nevertheless, a report on the new Red Wings arena project by the City Council’s Legislative Policy Division in August said outstanding television payments have been estimated to be between $50 million and $80 million.

“The city has been entitled to 25% of gross profits in excess of $750,000 received from the sale of television rights for events held live in either JLA or Cobo Arena,” the report said. “Although the city has been entitled to this remittance since 1980, it is unknown whether it has ever been received.”

(Page 2 of 5)

The deal is being brokered by the Jones Day law firm and also includes a new lease of Joe Louis Arena so the Red Wings can continue to play there until the new taxpayer-supported stadium is expected to be built, as early as the 2016-17 season.

Bill Nowling, a spokesman for emergency manager Kevyn Orr, would not dispute a final settlement of about $6 million to clear up the debt. Nowling said he expects a resolution by Friday, when the Detroit City Council meets to discuss the new arena project.

Nowling said this week that the amount the Ilitches owe may be inflated and incorrect.

“There’s a level of urban legend anytime the subject of how much the city is owed is discussed,” Nowling said. “Getting to the bottom of it can be troublesome and difficult.”

Ilitch Holdings said that it cannot comment on ongoing negotiations. Mike and Marian Ilitch they own several companies that do business in Detroit, including the Tigers.

The settlement would help pave the way for the new, $450-million hockey arena on the west side of Woodward just north of where I-75 crosses the northern edge of downtown. A resolution of all outstanding issues related to the team’s lease of Joe Louis Arena, which expired in 2010, is needed for the project to be finalized.

A state economic development board has agreed to issue bonds to pay for the arena’s construction. To pay off the bonds over 30 years, the Detroit Downtown Development Authority has committed to pay at least $12.8 million a year from its tax increment financing revenues and about an additional $2 million annually from other tax increment revenues. Olympia Development of Michigan, an Ilitch company, will pay $11.5 million a year until the bonds are paid off. No money from the city’s general fund will be used for the project and Olympia will have naming rights for the new arena and will keep all revenues from the arena operations.

City officials for years have butted heads with Ilitch family companies over finances. Most recently, Olympia Entertainment agreed to pay the city nearly $2.6 million in February after the Free Press reported on the company’s unpaid property tax bills at the Joe.

(Page 3 of 5)

Although the team’s lease expired in 2010, it remains a holdover tenant that is bound by the lease terms.

However, the company had not been making payments required under the lease since it expired. Olympia was to pay $300,000 a year plus property taxes capped at $252,000 a year.

When Olympia agreed to the $2.6-million payment in February, the company told the city that the payment covered rent, property taxes and other financial obligations tied to its occupancy of Joe Louis Arena.

But the city’s chief financial officer at the time, Jack Martin, disagreed. In a Feb. 22 letter to Olympia Entertainment, he said the money did not cover all of the company’s obligations under the expired lease, including rent and property taxes.

“We are ready and willing to discuss the process for reconciling the difference between your payment and the final payment due and owing,” Martin wrote in the letter to Olympia Entertainment. “The city of Detroit, therefore, gives notice that it retains all of its rights and remedies, and reiterates that the receipt of the checks are not to be deemed payment in full satisfaction of past amounts due and owing.”

The settlement of the Ilitch companies’ debt, including any outstanding payments for playing in the Joe, is expected to be discussed on Friday when the City Council holds a public hearing on two ordinances it has been asked to approve for the new arena project, including a request to expand the DDA’s boundaries to capture the necessary property taxes to help pay off the arena’s construction bonds.

The council has put off its vote on the ordinances because members wanted to see details of an agreement — approved by the DDA last week — for Olympia to operate the new arena. The council also has asked for information about the city’s negotiations related to the Red Wings’ lease of Joe Louis Arena.

City Council President Saunteel Jenkins’ office declined to comment Wednesday on the public hearing later this week. Other council members did not return calls seeking comment. It is not clear whether Orr, under Public Act 436, can overrule any rejection by the council related to the DDA vote.

(Page 4 of 5)

But during a meeting last month, council members said they expect Ilitch companies to be held accountable for their obligations under the expired lease.

Meanwhile, council members also have questioned Jones Day’s involvement in the negotiations and the Law Department’s reduced role as a result. Jones Day, Orr’s former employer, was hired in March as the city’s restructuring counsel and represents the city in its ongoing bankruptcy case.

Council members JoAnn Watson and Kenneth Cockrel Jr. questioned whether the city’s interests are being protected with Jones Day negotiating a resolution to the Joe Louis Area issues.

“There ought to be somebody from the Law Department who’s carrying water on this and not only a contractor who has conflicts,” Watson said during the council’s meeting on Nov. 26, when the Law Department revealed Jones Day’s involvement.

Nowling said Wednesday that Jones Day lawyers were brought in on negotiations for the new arena and the updated Joe Louis agreement because “they’re the experts the emergency manager relies upon,” and said the firm will work to get the best deal for Detroit.

“This is an important development for the future of the city, and it’s important that it gets done right,” Nowling said.

The Red Wings and the city have been attempting to hammer out a new lease of Joe Louis for more than four years. Negotiations have involved rent costs, ticket surcharge payments and other fees.

Of all the issues in play, payments owed to the city from cable TV sales are among the most contentious because officials on the two sides have such a fundamental disagreement.

The city has been unable to accurately calculate how much it should be paid because Olympia has provided so little information about its revenues, according to a auditor general’s report from 2007. The team was part of a 2008 deal with Fox Sports Detroit to broadcast games of the Red Wings, Pistons and Tigers over 10 years for a reported $1 billion. FSN, which declined to comment on the deal, has had rights to all local Wings telecasts since 2003.

(Page 5 of 5)

Marc Ganis, president of the Chicago-based sports consultancy SportsCorp, said Wednesday that the fight in Detroit over whether Olympia may owe millions in television revenues to the city is in many ways “an anachronism.”

Some cities tried to extract such revenues in leases of publicly owned or financed arenas decades ago, but the practice fell out of favor because of deep disputes about what exactly the teams had to pay — and general overestimation of how much revenue television rights would end up generating. Ganis said new contracts for arenas don’t include sharing profits from broadcasting and cable rights.

“It’s one of the reason why they didn’t continue — there were always disputes,” Ganis said. “This is old stuff. This goes back to the days when you would name an arena after a famous local figure and not a major company that paid you a lot of money for naming rights.”

For major league hockey teams, sharing broadcasting revenue can be particularly troublesome because the TV revenue represents a larger share of overall team income than it does for football and baseball teams, Ganis said. Hockey teams tend to be much more dependent on broadcasting rights and ticket sales for revenue, he said.

“The Red Wings have been a profitable team, but that profitability varies from year to year depending on how far they go into the playoffs,” Ganis said. “They’re not as profitable as one might expect.”

Forbes reported that the Wings generated $96 million for the 2012-13 abbreviated season that included a partial team lockout. Forbes valued the team at $470 million as of November.